Apple's Latest iPhone
Sees Slow Japan Sales

Two months after its launch, the latest version of
Apple
Inc.
's iPhone is showing strong sales around the world -- except in Japan.

ENLARGE

Demand has dropped from launch levels in July when Taichiro Nakamura bought his iPhone at a Tokyo store.
Associated Press

Apple's partnership with Japan's third-largest mobile operator, Softbank Corp., to sell the iPhone 3G certainly created a buzz. Like elsewhere, Japanese consumers lined up at stores in advance of the phone's release on July 11, and many locations sold out almost immediately. But now analysts estimate that demand in Japan has fallen to a third of what it was initially and analysts are now expecting fewer iPhone sales. There is no supply shortage: The device is readily available in Apple and Softbank stores and other outlets. Major electronics retailer Yodobashi Camera's megastore in the western city of Osaka, for example, recently had more than 100 of them stacked up in open view.

A spokesman for Softbank, which has 19.5 million wireless subscribers, said the iPhone continues to be popular, but declined to provide details. A spokesman for Apple Japan declined to comment. Sales have been slowed by the iPhone's relatively high price and the fact that Japan is already home to some of the world's most advanced cellphones. The iPhone's limited success so far shows how tough it continues to be for foreign manufacturers to crack the Japanese cellphone market.

More than 10 domestic handset manufacturers compete for a slice of Japan's cellphone market, one of the world's largest with annual sales of 50 million phones.
Nokia
Corp.
, the industry leader in global shipments, has less than 1% share in Japan. Instead, Sharp Corp. leads the Japanese market, with about 25% of shipments. The global market is more than one billion phones.

Still, expectations had been high that if anyone could break into such an insular market, Apple would with the iPhone 3G because of its strong brand name and popularity of its iPod players and Macintosh computers. The original iPhone wasn't sold in Japan.

According to market-research firm MM Research Institute, Apple sold about 200,000 phones in Japan in the first two months. Since then, however, demand has been falling steadily, and analysts now widely believe sales are unlikely to reach a total of 500,000 units. That is half the one million units that they previously thought Apple could sell. One big challenge is that Japanese users already have access to some of the most advanced mobile-phone technologies in the world. Models currently sold by Japanese cellphone makers typically contain a high-end color display, digital TV-viewing capability, satellite navigation service, music player and digital camera. Many models also include chips that let owners use their phones as debit cards or train passes. Noriko Tanaka, a 34-year-old Softbank customer in Tokyo, said she likes the iPhone's touch screen, but would prefer a phone with digital television capability. "The touch screen looks fun, but I'm not sure I could get used to it," said Ms. Tanaka.

Another challenge for Softbank is that Apple's marketing for the new iPhone has touted the devices compatibility with 3G wireless networks, which give users faster access to the Internet. While this is a relatively new service in the U.S., 3G access has been a standard feature on Japanese phones for years.

"The iPhone is a difficult phone to use for the Japanese market because there are so many features it doesn't have," says
Eimei Yokota,
an analyst with MM Research. He said one small but must-have feature that is often cited as a deficiency in the iPhone is the lack of "emoji," clip art that can be inserted in sentences to jazz up emails. Japanese consumers have also shied away from the phone because of its high price. Through a complex discount equation, Softbank makes a 16-gigabyte phone available for about 58,560 yen, or around $540, for current Softbank customers or 34,560 yen, or around $320, for new customers, both prices require a two-year contract. That compares with a U.S. price of $299 with AT&T Inc. under similar conditions.

In addition, Japanese customers pay as much as $60 a month to access the Internet and download software applications, along with the usual calling charges. Softbank has lowered its starting data service price since the iPhone launch, but the potential cost is prohibitive for some people, particularly when many Japanese phones are on sale at a lower price.

One iPhone feature that is unique even to Japanese users is the App Store, Apple's online clearinghouse for software, such as games and reference guides. The App Store is popular among U.S. users, but hasn't taken hold as much in Japan, where consumers tend to be more cautious about making purchases online.

Takuro Hiraoka,
an analyst for GfK Marketing Services Japan Ltd., says Apple could take more advantage of this feature to boost sales going forward. "Japanese users don't know what to do with an iPhone," he said. "Sales could grow if Apple provides specific examples of how it can be used."

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